Don't blow your financial future in your 40's – our 10 tips

We recently wrote about why people should be thinking about their retirement in their 30’s, and why this is the time when you should start seriously saving to achieve your desired lifestyle in retirement. We got a great reaction to this article, and were asked by a number of people in their 40’s for some tips in relation to managing money at their stage of life.

So here goes with our Top 10 Tips for managing your money in your 40’s.

1. Keep control of your lifestyle

For a lot of people as they enter their forties, the financial pressure starts to ease a bit. As a result of career progression and increased earnings, the bills (in particular the mortgage repayments) don’t look quite so daunting any more. And this is when people’s lifestyles can run out of control. Rather than putting their increased wealth to good use, they simply grow their lifestyle until this becomes the new “norm”. And as a result, that hard earned extra income ends up delivering zero impact to your long-term financial health. Put that extra wealth to good use.

2. Be careful with debt

Higher incomes and higher available financial resources generally result in people becoming less cautious with their money, as they have the financial firepower to suffer some losses. That’s fine, once you can afford these losses. When you borrow for investment purposes, any gains are quickly multiplied. However should you suffer losses with leveraged investments, these losses are multiplied too. Many Irish investors suffered catastrophic losses when the economy crashed in 2008, most of them because they had used debt to fund their investments. Be very careful with debt.

3. Be careful what you spend on your house

We’re all for living in comfort, but be careful that your house doesn’t become an unwanted millstone around your neck. We’ve seen a number of examples of people with the back broken on their mortgage, and then deciding that it’s time to almost re-build the house or indeed move to a bigger house. The rationale is usually around higher income levels making this possible, and also because the kids need more space – don’t they? This may well make sense, just be clear that the it’s hard to recoup money spent on your house, it usually isn’t fully reflected in future valuations. Also think past the next 5-10 years – will you want a bigger house when the kids decide it’s time to move on?

4. Don’t forget about your health and yourself!

It’s very easy (and rewarding) to get sucked into and really involved in the lives of your children. However don’t let this happen to the detriment of your own health and your other relationships. Not taking care of your own health will probably result in very nasty medical bills down the road. So make sure you keep eating well and exercising regularly to keep yourself in good shape. And make sure you’ve quality time with your partner away from the kids. Letting yourselves drift apart runs the risk of a nasty (and very costly) separation down the road. Keep the date nights going!

5. Don’t let your career drift

With us all living longer and needing to be more self-sufficient in retirement, we’re going to be working until later in life. So your 40’s are only the mid-point of your career, if even that! This is not the time to take the foot of the pedal and start coasting towards retirement. Acquire new skills, get new qualifications, maybe develop additional income sources. You still have a huge amount to offer the world of work, so put these years to good use.

6. Review your emergency fund

Maybe you were very forward-thinking years ago, listened to the advice and built a nice “rainy day” fund. Now’s the time to take a good, hard look at it. A fund built up a few years ago may be quite inadequate today. Do you need to add to this to cover your current level of expenses?

7. These are big years for retirement savings

These are often the critical years for retirement savings. You now have the financial firepower to really turbocharge your retirement fund, and you also still have the time on your side to benefit from the magic of future compound interest. So make these years the high impact years in your retirement savings.

8. Don’t lose sight of your protection needs

If you get sick or should die, would your current protection cover fully cover the lifestyle requirements of your family, or did you set up your life assurance and income protection policies back in the days of lower income levels and lower household expenses? These may need to be reviewed, and we would be delighted to assist you in this task.

9. Who are you (or will you be) caring for?

One big challenge facing families today is the multi-generational impact on financial plans. It’s not enough to plan solely for your own future. All too often, we see parents playing an important role in helping their children with significant deposits to enable them to get on the home ownership ladder. After all, maybe it’s the only way to get them to finally move out! And as we see older people living longer and having more complex care needs later in life, the burden of financing this support may fall on the family. Does your financial plan take account of these costs?

Have you thought about wealth transfer?

Depending on your specific financial situation, now might well be the time to really start looking at the future transfer of your wealth. If you have significant assets to pass on eventually, these can be seriously eroded by our penal inheritance tax environment. Planning for this a long time in advance will allow us to develop financial strategies that will enable you to significantly reduce this tax burden, ensuring your assets go mainly to your loved ones and not to the taxman.

Follow these 10 tips and you’ll enter your 50’s in great financial shape!